The Bank of England has kept interest rates on hold at 0.75% after August’s hike, but it confirmed further increases are likely to be needed to rein in inflation.
Members of the Bank’s nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates unchanged, having backed a quarter-point rise last month – only the second since the financial crisis.
The Bank said economic growth is on course to beat expectations for the third quarter thanks to a bumper July, but it cautioned over “greater uncertainty” on Brexit.
In minutes of the latest rates meeting, the Bank revealed its internal estimates show economic growth is set to pick up pace to around 0.5% in the third quarter, from 0.4% between April and June. It had previously predicted growth would remain steady at 0.4% in the third quarter.
Official figures on Monday showed the UK economy enjoyed a growth spurt in July, with expansion of 0.3% in the month and 0.6% on a three-month basis thanks to a surge in spending driven by the World Cup and heatwave.
The Bank said while the outlook for consumer spending had not changed substantially, “if anything, spending in the third quarter might prove to be slightly stronger than expected”. Its decision to hold rates came as it said the August set of forecasts appear broadly on track.
The UK Chancellor confirmed on Tuesday that Bank governor Mark Carney will stay on in the post until January 2020, extending his term by seven months to help support the UK through Brexit. Economists are not expecting the Bank to push the button on any more rate rises until after the March 2019 Brexit date due to the increased uncertainty.
Minutes of the meeting revealed that while inflation is set to build further, the recent energy price cap details unveiled by regulator Ofgem would mean inflation is set to be reduced by more than expected over the course of 2019.